At issue is how to wind down a $1.6 trillion portfolio of toxic assets - without jeopardizing the public support needed to support ongoing government interventions.

"No one knows better than I that AIG has been the recipient of generous amounts of American aid," Liddy told a House Financial Services subcommittee. "We are essentially operating AIG on behalf of the American taxpayer so we maximize the amount we can pay back as fast as possible."

An ex-CEO of Allstate, Liddy was tapped by former Treasury Secretary Henry Paulson to head AIG in September 2008, after a $85 billion bailout gave the federal government a controlling stake in the company. Liddy froze executive salaries in November and set his own compensation at $1.

"We do not intend to harass you in this committee, nor should we," said Rep. Paul Kanjorski (D) of Pennsylvania, who chaired the Capital Markets subcommittee. He and several other panel members reminded viewers that Liddy had been "pressed into public service by the US government."

When he first learned of "potential bonus payments," Mr. Kanjorski said that he had warned Liddy that if the bonuses were paid, "it would jeopardize a second rescue plan that may be needed to save the American economy."

"I thought you were missing the gravity of the situation," he said.

In response, Liddy said that he was "trying desperately to prevent a collapse of the business."

"That said, we've heard the American people loudly and clearly in the last few days," he added. He told panelists that that morning, he had asked employees at its financial products division to "step up and do the right thing."

Those receiving bonuses in excess of $100,000 should return at least half of those payments. "Some have stepped up and offered to give back 100 percent," he said.

Ask to name the names of those who had not given back their bonuses, Liddy said that he was worried about the safety of his employees, if their names become public.

In one of the toughest exchanges of the hearing, Rep. Barney Frank (D) of Massachusetts, who chairs the full House Financial Services panel, threatened to issue subpoenas for the names. Without agreeing to release names, Liddy said that AIG "will obviously comply with the law."

Since the government bailout, AIG has reduced its portfolio of toxic assets from $2.7 trillion to $1.6 trillion, he told the House panel.

Troubled credit default swaps, once accounting for $80 billion in bad paper, are down to $10 billion, Liddy said.

He disputed charges that decisions on the bonuses had been made in secret. Contracts called for the payments to be made on March 15 (Sunday), he said.

"I don't recall if we discussed all of the particulars with your staff," he told Kanjorski. "We've been talking about this with the New York Federal Reserve for literally three months."

"It seems to me that somebody was asleep at the switch. This was a profound issue that borders on fraud and criminality," said Rep. David Scott (D) of Georgia.

In a radio interview released by his office, House Republican leader John Boehner said that "there are just a lot of questions all surrounded by what did the administration know, when did they know it, and what did they do about it? And we're trying to get to the bottom of this on behalf of American taxpayers who are rightly outraged at this abuse of their money."